1. In 2005, ____________ was the most significant real asset of U. S.

nonfinancial
businesses in terms of total value.
A) equipment and software
B)inventory
C) real estate
D) trade credit
E) marketable securities

2. In 2005, ____________ was the least significant real asset of U. S. nonfinancial

businesses in terms of total value.

A) equipment and software

B) inventory
C) real estate
D) trade credit
E) marketable securities

3. In 2005, ____________ was the least significant liability of U. S. nonfinancialbu

sinesses in terms of total value.
A) bonds and mortgatges
B) bank loans
C) inventories
D) trade debt
E) marketable securities

4. In 2005, ____________ was the most significant financial asset of U. S. nonfina

ncialbusinesses in terms of total value.

A) cash
B) trade credit
C) trade debt
D) inventory
E) marketable securities
1.4.5. The material wealth of a society is equal to the sum of _________.
A) all financial assets

B) all real assets

C) all financial and real assets

D) all physical assets

E) none of the above

6. ____________ of an investment bank.

A) Citigroup is an example

B) Merrill Lynch is an example

C) Goldman is an example

D) B and C are each examples

E) Each of the above is an example

7. _______ are financial assets.

A) Bonds

B) Machines

C) Stocks

D) A and C

E) A, B and C
8. Financial assets permit all of the following except ____________.

A) consumption timing

B) allocation of risk

C) separation of ownership and control

D) elimination of risk

E) all of the above

9. The Sarbanes-Oxley Act ____________.

A) requires corporations to have more independent directors

B) requires the firm's CFO to personally vouch for the firm's accounting statements

C) prohibits auditing firms from providing other services to clients

D) A and B are correct.

E) A, B, and C are correct

10. Asset allocation refers to ____________.

A) choosing which securities to hold based on their valuation

B) investing only in safe securities

C) the allocation of assets into broad asset classes

D) bottom-up analysis
E) all of the above

11. Which of the following portfolio construction methods starts with security anal
ysis?
A) Top-down
B) Bottom-up
C) Middle-out
D) Buy and hold
E) Asset allocation

12. Which of the following portfolio construction methods starts with asset allocati
on?

A) Top-down

B) Bottom-up

C) Middle-out

D) Buy and hold

E) Asset allocation

13.If C0 stands for the initial cash flow, r - for the rate of interest (annual), and n -
for the number of periods (years), then future value (FV) is given by the following
formula:

14. If Cn stands for the value of the cash flow after n periods (years), r - for the rate
of interest (annual), and n - for the number of periods (years), then present value
(PV) is given by the following formula:
 

15. If I0 stands for the initial investment at time 0, C 1 - for cash flow after one year,
and r - for the rate of interest, then the net present value (NPV) for 1 period is
given by the following formula:


16. Which investment will be characterized by the highest monetary return at the
end of the investment horizon? Assume annual compounding.
5 years at the interest rate of 5% per year.
7 years at the interest rate of 3% per year.
4 years at the interest rate of 9% per year.
2 years at the interest rate of 6% per year.

17. Which of the following represents the future value of £1,000 invested at 10%
per annum for 10 years?

£2,500
£1,913
£2,594
£2,600

18. Using the NPV criteria, a project should be selected when:

Its NPV is positive or zero.

Its NPV is equal to zero.
Its NPV is negative.
Its outflows are greater than its inflows.

19. Why is it sometimes possible to obtain inconsistent results between Internal

Rate of Return (IRR) and Net Present Value (NPV) for the purposes of comparison
between two or more projects?
Because they are measured in different units.
Because IRR does not take account of the time value of money.
Because NPV does not take account of the time value of money.
Because the NPVs 'cross over' as the discount rate is increased.

20. Which of the following is not true with respect to the Accounting Rate of
Return (ARR)?
It is based on accounting concepts such as accounting profit and depreciation.
It takes account of the time value of money.
The hurdle rate is arbitrary.
The definition of both profit and capital can be somewhat arbitrary and variable.

21. The fundamental principle of the application of Discounted Cash Flow (DCF)
techniques to investment appraisal is:

To incorporate all incremental cash flow.

To incorporate all sunk cost.
To incorporate all relevant depreciation.
To absorb all company overheads.

22. Which of the following is not a criticism of payback?

It ignores potentially valuable cash flow after the cut-off point.
The cut-off point for recovery of investment outlay is arbitrary.
The technique cannot be adapted to discounted cash flow
It may help to resolve large amounts of uncertainty.

23. Which of the following is not a characteristic of wholesale markets?

Firms deal with other firms.
Lending and borrowing is coordinated through banks.
Borrowing and lending is not intermediated.
Very large quantities of money are at stake.

24. Which of the following world stock exchanges were in the top five by value of
transaction in 2009?
London Stock Exchange.
Shanghai Stock Exchange.
Deutsche Börse.
Hong Kong Exchanges.

25. Which of the following is not a characteristic of a preference share?

Ranks last for payment in the event of company liquidation.
Unpaid dividend accrues until it can be paid.
Do not usually have voting rights unless dividends fall into arrears.
It is more like debt than a share in its characteristics.

26. Which of the following is the correct expression for the percentage return on a
share?

Rt = (dt + Pt - Pt-1)/Pt-1
Rt = (dt + Pt - Pt-1)
Rt = (dt + Pt - Pt-1)/ dt
Rt = (-dt - Pt + Pt-1)/Pt-1

27. Which of the following is not one of the qualities which makes debt attractive
to firms?
A) The cost of debt is generally less than the cost of share capital and hence can
lower the overall cost of capital for a firm.
B) Debt interest only gets paid when the company is making a profit.
C) It reduces the amount of corporate tax payable by firms by reducing the amount
of taxable profit.
D) The required return on debt is lower because, from the lender's point of view,
debt is less risky than equity.

28. Which of the following is not a money market instrument?

A) Bonds.
B) Treasury bills.
C) Certificates of deposit (CDs).
D) Commercial paper (CP).

29. Which of the following is not a defining quality of a bond?

A) Dividend yield.
B) Maturity.
C) Face value.
D) Coupon payment frequency.

30. What is the value of a 6%, five year bond with annual coupons and face value
equal to £1,000, if the current yield to maturity is 6%?

A) £1,089
B) £920
C) £1,200
D) £1,000

31. As which type of cash flow is an equity share usually valued?

A) An annuity cash flow.

B) A risk-free cash flow.
C) A perpetuity cash flow.
D) An erratic cash flow.

32. Under which of the following market efficiency regimes would technical
analysis not generate abnormal returns?
A) Weak market efficiency.
B) Semi-strong market efficiency.
C) Strong form market efficiency.
D) All three.

33. Arbitrageurs in foreign exchange markets:

A) need foreign exchange in order to buy foreign goods.

B) make their profits through the spread between bid and offer rates of exchange.

C) take advantage of the small inconsistencies that develop between markets.

D) attempt to make profits by outguessing the market.

34. State whether the following is true or false.

£1 = US$1.8879 is a direct quotation of the exchange rate of sterling.

 A) True
B) False

35. State whether the following is true or false.

In the exchange rate £1 = US$1.8865-1.8893, $1.8893 is the offer rate of sterling.

A) True
B) False

36. State whether the following is true or false.

Given the following indirect quotation of the dollar, $1 = €0.9598-9.620, the direct
quotation is $1 = €0.9609, the mid-point between the two numbers.

A) Ture
B) False

37. State whether the following is true or false.

Almost all direct quotations of exchange rates involve the US dollar.

A) True
B) False

38. State whether the following is true or false.

The diagram below shows an increase in the value of sterling as the supply curve
shifts from S1 to S2
C) speculators are almost certain to lose
A) True
D) there are few sudden large movements of the exchange rate

40.Economics teaches that:

A) exchange rates should be determined by the market fundamentals

B) exchange rates should be determined by transactions that are included in the

current account of the balance of payments.

C) foreign exchange markets are always efficient

D) exchange rates move rapidly to return to equilibrium positions.

41. It is very difficult to interpret news in foreign exchange markets because:

A) it is difficult to know which news is relevant to future exchange rates.

B) very little information is publicly available.

C) most of the news is foreign.

D) it is difficult to know whether the news has been obtained legally.

42. Covered interest rate parity occurs as the result of:

A) interest rate arbitrage.

B) the actions of market-makers.

C) purchasing power parity

D) stabilising speculation.

43. Given the following interest rates on different currencies, which of the
following is true?
Sterling 6 percent.
Euro 3.5 percent.
Dollar 6.25 percent.
Yen 0.5 percent.

A) The dollar must be at a forward premium to the yen because no one would
be willing to hold yen at such a low rate of interest.
 B) The yen must be at a forward premium to the euro because one can borrow
yen much more cheaply than euro.

C) The euro must be at a forward premium to sterling because no one believes

that the euro can continue to fall in value.

D) The dollar must be at a forward premium to the yen because a very high
percentage of world trade is carried out in dollars.

44. Which of the following best explains the fact that interest rates on the euro are
lower than those on the pound?

A) British markets are offshore from mainland Europe.

B) Inflationary expectations are higher in the UK than in the eurozone.

C) The euro is a weaker currency than sterling.

D) Unemployment is higher in the eurozone than in the UK.

45. The euro is:

A) a currency, the value of which is determined by demand and supply.

B) a weighted average of the currencies of EU member countries.

C) the currency of EU member countries.

D) a currency that is only traded offshore.

46. Overshooting models of the exchange rate are an attempt to explain:

A) why exchange rates are so volatile.

B) why the foreign exchange market is never in equilibrium.

C) why forward rates of exchange are not good predictors of future spot rates of
exchange.

D) why purchasing power parity plays no role in determining the value of a

currency.

49. The currency used to buy imported goods is :

A) the currency of a third country.

B) the buyer's home currency.

C) special drawing rights.

D) the seller's home currency.

50. If portable disk players made in China are imported into the United States, the
Chinese manufacturer is paid with

A) dollars.

B) yuan, the Chinese currency.

C) euros, or any other third currency.

D) international monetary credits.

51. Which of the following statements is correct?

I. The exchange rate is a price.

II. The exchange rate is different from other prices because it is NOT determined
by supply and demand.

A) only I

B) only II

C) I and II

D) neither I nor II

52. When the value of one currency falls relative to another currency, the exchange
rate for the first currency has

A) revalued.

B) depreciated.

C) appreciated.

D) demanded.

53. Suppose that the exchange rate between the dollar and the peso changed from 6
pesos per dollar to 8 pesos per dollar. This change means that the
A) peso appreciated.

B) peso depreciated.

C) dollar depreciated.

D) Both answers A and B are correct.

54. The table above shows the exchange rates between various currencies and the
U.S. dollar. Between 2007 and 2008, the U.S. dollar ________ against the euro and
________ against the Japanese yen.

A) depreciated; appreciated

B) appreciated; depreciated

C) depreciated; depreciated

D) appreciated; appreciated

55. The table above shows the exchange rates between various currencies and the
U.S. dollar. Between 2007 and 2008, the Japanese yen ________ against the U.S
dollar and the euro ________ against the U.S. dollar.

A) depreciated; appreciated

B) depreciated; depreciated

C) appreciated; appreciated

D) appreciated; depreciated

56. If the price level in the U.S. is 120, the price level in South Africa is 140, and
the nominal exchange rate is 7 South African rands per dollar, then the real
exchange rate is:

A) 1.4 South African goods per U.S. good.

B) 9.8 South African goods per U.S. good.

C) 6 South African goods per U.S. good.

D) 8.4 South African goods per U.S. good.

57. With everything else the same, in the foreign exchange market the

A) the higher the exchange rate, the cheaper are U.S.-produced goods and services.

B) the lower the exchange rate, the smaller is the expected profit from buying
dollars.

C) larger the value of U.S. exports, the greater is the quantity of dollars demanded.

D) lower the exchange rate, the smaller the amount of U.S. exports.

58. If the exchange rate falls, then the expected profit from holding the currency

A) increases.

B) decreases.

C) does not change.

D) can either increase or decrease.

59. Using the table above, if the current market value of the dollar is 125 francs per
dollar

A) investor A expects dollar depreciation, but B and C expect appreciation.

B) all three investors expect the dollar to appreciate.

C) investor A expects dollar appreciation, but B and C expect depreciation.

D) all three investors expect the dollar to depreciate.

60. Using the table above, if the current market value of the dollar is 125 francs
A) all three investors hold francs.

B) investor A holds francs, but B and C hold dollars.

C) investor A holds dollars, but B and C hold francs.

D) all three investors hold dollars.

61. Using the table above, if the current market value of the dollar is 70 francs

A) all three investors expect the dollar to appreciate.

B) all three investors expect the dollar to depreciate.

C) investor A expects dollar appreciation, but B and C expect depreciation.

D) investor A expects dollar depreciation, but B and C expect appreciation.

62. When the U.S. exchange rate rises, foreign goods become ________ and U.S.
imports ________.

A) more expensive; decrease

B) less expensive; decrease

C) more expensive; increase

D) less expensive; increase

63. The quantity of dollars supplied will decrease if

A) imports into the United States increase.

B) the expected future exchange rate falls.

C) the interest rate in the United States falls.

D) fewer U.S. residents travel abroad.

64. If the exchange rate between the dollar and Japanese yen is below the
equilibrium exchange rate, there will be a ________ of dollars, and the exchange
rate will ________.
A) shortage; change only when the supply curve shifts leftward

B) shortage; rise to the equilibrium level

C) surplus; fall to the equilibrium level

D) surplus; rise to the equilibrium level

65. Important factors that change the demand for dollars and shift the demand
curve for dollars include which of the following?

I. Interest rates around the world.

II. The current exchange rate.

III. The expected future exchange rate.

A) II only

B) I, II, and III

C) I and III

D) I and II

66. Airbus is a European jet airline producer. Indian Airlines wants to buy 23
Airbus planes from Airbus, due to increased demand for world travel. As a result,
the
A) demand curve for euros shifts leftward.
B) quantity demanded for euros increases as the euro/rupee exchange rate
increases.
C) quantity demand for euros decreases, on matter what the euro/rupee exchange
rate is.
D) demand curve for euros shifts rightward.

67. Saudi Telecom is a major producer of telecommunications equipment in Saudi

Arabia. The Free Market Iraqi Conglomerate (FMIC) is a collections of over 100
firms that wish to upgrade the communications infrastructure of Iraqi. When FMIC
buys $4.5 million U.S. dollars worth of equipment from Saudi Telecom, the
A) demand curve for Saudi Arabian riyals and the supply curve for Iraqi dinars
both shift rightward.
B) demand curve for U.S. dollars shifts rightward.
C) demand curve for Iraqi dinars and the supply curve for U.S. dollars both shift
rightward.
D) demand curve for Saudi Arabian riyals and the supply curve for U.S. dollars
both shift rightward.

68. If the interest rate on Swiss franc assets increases, the

A) demand for dollars will decrease.

B) demand for dollars will increase.
C) quantity of dollars demanded will decrease.
D) quantity of dollars demanded will increase.

69. Today the U.S. dollar is worth 1.5 Canadian dollars. By the end of the month, it
is expected that the U.S. dollar will be worth 1.2 Canadian dollars. This belief

A) decreases the value of exports to Canada.

B) decreases the demand for Canadian dollars.
C) increases the demand for U.S. dollars.
D) decreases the demand for U.S. dollars.

70. In the figure above, the shift in the demand curve for U.S. dollars from D0 to
D1 could occur when
A) people expect that the dollar will depreciate.
B) the expected future exchange rate decreases.
C) foreign interest rates increase.
D) the U.S. interest rate rises.

71. In the figure above, the shift in the demand curve for U.S. dollars from D0 to
D2 could occur when

A) the U.S. interest rate rises.

B) people expect that the dollar will appreciate.
C) the U.S. interest rate falls.
D) foreign interest rates fall.

72. In the figure above, the shift in the demand curve for U.S. dollars from D0 to
D2 could occur when

A) the expected future exchange rate increases.

B) foreign interest rates rise.
C) people expect that the dollar will appreciate.
D) the U.S. interest rate rises.

73. If the U.S. Federal Reserve increases interest rates, ceteris paribus,

A) the supply curve of U.S. dollars shifts leftward and the supply curve of
European euros shifts rightward.
B) only the demand curve for U.S. dollars shifts rightward.
C) the demand curve for U.S. dollars and the demand curve for European euros
both shift rightward.
D) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S.
dollars shifts rightward.

74. If the prices in the United States rise faster than those in other countries

A) then interest rate parity must not hold.

B) the exchange rate falls.
C) the interest rate in the United States falls.
D) the exchange rate rises.

75. Suppose a deposit in New York earns 6 percent a year and a deposit in London
earns 4 percent a year. Interest rate parity holds if the
A) U.S. dollar depreciates by 2 percent a year.
B) U.S. dollar appreciates by 2 percent a year.
C) U.K. pound depreciates by 2 percent a year.
D) None of the above answers is correct because interest rate parity requires that
the interest rates be the same in both countries.

76. Which of the following exchange rate policies uses a target exchange rate, but
allows the target to change?

A) fixed exchange rate

B) flexible exchange rate
C) crawling peg
D) moving target

77. Investment is an enduring virtuous circle because there are?

a. No buyers, only sellers

b. No savers, only consumers
c. Willing buyers and willing sellers
d. No sellers, only buyers

78. Providing a hedge against inflation is a key objective of every investment

strategy in order to?

a. Protect purchasing power

b. Achieve diversification
c. Reduce gearing
d. Achieve economies of scale

79. Which statement best describes the final stage of the investment life cycle?

a. Increasing capital from capital

b. Creating capital from income
c. Increasing income from income
d. Producing income from capital

80. A ‘pooled investment’ gives investors direct access to (select all that apply):

a. A wide range of stocks

b. Investment expertise
c. A stockbroker
d. Other people’s savings

81. Which statement best describes the relationship between investment risk and
reward?

a. The greater the potential for reward the greater the risk of loss
b. The potential for investment reward has no relationship to investment risk
c. The greater the investment risk, the less likely the potential for reward
d. Investment risk is reduced by investing more

82. As different currencies always move relative to each other they are?

a. Inflation proof
b. Credit risks
c. Negatively correlated
d. Stock specific risks

83. 7. The individual risk usually associated with a particular issuer of bonds is
called?

a. Credit risk
b. Junk bonds
c. Investment grade
d. High yield

84. Identifying the investment time horizon is important for?

a. Inheritances
b. Borrowing to speculate
c. Purchasing properties
d. Shaping investment strategy and risk profile

85. Diversification is achieved by investing in?

a. A concentrated portfolio
b. Microsoft shares
c. Dot-com stocks
d. A wide range of stocks in different asset classes

86. Which phrase best describes ‘investment’?

a. An exact science
b. An art and not a science
c. The benefit of hindsight
d. Pure guesswork

87. Every financial market has the following characteristic:

A) It determines the level of interest rates.

B) It allows common stock to be traded.
C) It allows loans to be made.
D) It channels funds from lenders-savers to borrowers-spenders.

88. Financial markets have the basic function of

A) bringing together people with funds to lend and people who want to borrow
funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) both (A) and (B) of the above.
E) both (B) and (C) of the above.

89. Which of the following can be described as involving direct finance?

A) A corporation’s stock is traded in an over-the-counter market.

B) People buy shares in a mutual fund.
C) A pension fund manager buys commercial paper in the secondary market.
D) An insurance company buys shares of common stock in the over-the-counter
markets.
E) None of the above.

90. Which of the following can be described as involving direct finance?

A) A corporation’s stock is traded in an over-the-counter market.

B) A corporation buys commercial paper issued by another corporation.
C) A pension fund manager buys commercial paper from the issuing corporation.
D) Both (A) and (B) of the above.
E) Both (B) and (C) of the above.

91 Which of the following can be described as involving indirect finance?

A) A corporation takes out loans from a bank.

B) People buy shares in a mutual fund.
C) A corporation buys commercial paper in a secondary market.
D) All of the above.
E) Only (A) and (B) of the above.

92. Which of the following can be described as involving indirect finance?

A) A bank buys a U.S. Treasury bill from one of its depositors.

B) A corporation buys commercial paper issued by another corporation.
C) A pension fund manager buys commercial paper in the primary market.
D) Both (B) and (C) of the above.

93. Financial markets improve economic welfare because

A) they allow funds to move from those without productive investment

opportunities to those who have such opportunities.
B) they allow consumers to time their purchases better.
C) they weed out inefficient firms.
D) they do all of the above.
E) they do (A) and (B) of the above.

94. Which of the following are securities?

A) A certificate of deposit
B) A share of Texaco common stock
C) A Treasury bill
D) All of the above
E) Only (A) and (B) of the above

95. Which of the following statements about the characteristics of debt and equity
are true?

A) They can both be long-term financial instruments.

B) They both involve a claim on the issuer’s income.
C) They both enable a corporation to raise funds.
D) All of the above
E) Only (A) and (B) of the above

96. Which of the following are long-term financial instruments?

A) A negotiable certificate of deposit
B) A banker’s acceptance
C) A U.S. Treasury bond
D) A U.S. Treasury bill

97. Which of the following are short-term financial instruments?

A) A negotiable certificate of deposit

B) A banker’s acceptance
C) A U.S. Treasury bond
D) Both (A) and (B) of the above
E) Both (B) and (C) of the above

98. Which of the following are short-term financial instruments?

A) A banker’s acceptance
B) A share of Walt Disney Corporation stock
C) A Treasury note with a maturity of 4 years
D) All of the above

99. Which of the following are primary markets?

A) The New York Stock Exchange

B) The U.S. government bond market
C) The over-the-counter stock market
D) The options markets
E) None of the above

100. Which of the following are secondary markets?

A) The New York Stock Exchange

B) The U.S. government bond market
C) The over-the-counter stock market
D) The options markets
E) All of the above
1 Widely discuss about financial system designs (Bank dominated, Security
dominated)
2 Widely discuss about features of international finance
3 Widely discuss about first investment instruments
4 Widely discuss and give classification of equity
5 Widely describe what is emerging market?